What should I do if my company is facing legal action?
Answer by Emma Macalister Hall, from London-based law firm Bristows.
Internal training and setting up processes
Once litigation has commenced, there are strict timeframes, for example, you have 14 days to respond to a Claim Form which includes Particulars of Claim. Although time extensions can sometimes be obtained, if deadlines are not observed, the court can order a party to pay costs or could give judgment in favour of the other side. Timeframes run from the date a court document is received by a company, not from the date a Director, CEO or any legal department is made aware of it. Here’s how you can be better prepared and how you can promptly react:
- Implement internal processes whereby employees can recognize court documents and know which individual or department to escalate these to. Ensure employees are aware of the strict timeframes and do not delay passing on documentation;
- An individual or team of individuals will need to be put in place to manage the conduct of litigation. This could be an internal team, or external lawyers, or a combination of the two;
- Litigation will, in almost all instances, be conducted in public, therefore it is prudent to consider how to manage public relations and how to liaise with existing clients and contacts should the matter go all the way to trial.
Investigation / Assessment
It is hard to assess how serious an action is before a company has a proper understanding of what the problem actually involves. It is necessary to:
- Analyse the nature of the claim and compile a list of information required to assess it. Identify where relevant information is held and which employees are able to assist with locating or providing documentation. Ensure you obtain evidence at an early stage from any employee who may leave the organization.
- Conduct a risk assessment of the implications of the litigation, commercially and for the company’s reputation.
- Instruct solicitors for legal advice. It is advisable for external solicitors to carry out initial investigations as any documents created by external lawyers are more likely to be covered by legal privilege, meaning the other side and the court will not be able to inspect them during the course of the litigation.
- Explore whether there are any funding options (such as ‘no win, no fee’) available for your dispute.
- Review the company’s insurance policy. There may be a specific obligation on the company to inform the insurance provider and / or to use specific solicitors in the event a legal claim is commenced.
In litigation in the English and Welsh courts, the parties have to disclose all documents which are relevant to the action, even if they support the other party’s case. When a company is facing legal action it is important to take care with document creation and retention. Some possible actions for you:
- Create a document retention policy and suspend any document deletion process once you are aware of potential litigation. Pay special attention to electronically stored information, including creating and storing backup tapes.
- Ensure staff are aware that any documents they create (in hard or soft copy form) after the litigation has commenced could be requested by the other side or the court. Care should be taken not to create documents that will be actively unhelpful.
- As a general policy, whether facing litigation or not, it is important to keep copies of contracts and key documents relating to projects.
Commercial reality / Settlement
Litigation can be very expensive. If the matter proceeds to court the judge can order the losing party to pay damages and the legal costs of the successful party, which will be in addition to any legal costs the unsuccessful party has itself incurred.
You could consider:
- Entering into settlement discussions at an early stage to reach an agreement, which will avoid the need for litigation. It can be helpful to commence negotiations early before costs and acrimony between the parties have increased. Such discussions can be conducted on a ‘without prejudice basis’, meaning they cannot be referred to if the dispute proceeds to trial.
- Carrying out a cost benefit analysis to assess the relative commercial merits of pursuing a course of action.
- Evaluating Alternative Dispute Resolution if a settlement does not look to be possible. Mediation involving an independent mediator, could be an appropriate alternative to court action. As well as being cheaper than litigation, this has the advantage of being confidential. Parties can also include as part of a settlement remedies the court cannot, for example, an apology or agreement in relation to future goods / services.
But how to avoid it? Preventative measures
Litigation is uncertain and significant costs can be incurred extremely quickly. Companies should take steps to reduce their exposure even before a claim has been received or threatened. This process will also help limit the impact of litigation in the unfortunate event it cannot be avoided.
Here are a few tips for you:
- When negotiating contracts, for particularly important and / or high value deals, seek legal advice at an early stage so that any contractual ‘red flags’ are caught and can be addressed before the contract becomes binding. In the event of a dispute, courts tend to uphold the terms of the contract the parties have entered into, even where the obligations are particularly unfair on one party.
- Ensure an effective dispute resolution clause is included in the company’s contracts, setting out a clear procedure for the parties to follow in the event of a disagreement. This will be more cost effective and can prevent or delay court action.
- Include contractual clauses limiting liability. For example, a liquidated damages clause can limit litigation about the extent of damages payable. Similarly, exclude obligations to parties other than those you are contracting with (third parties). Unless expressly excluded, third parties can be given rights under a contract, increasing exposure to litigation and potential damages.
- Ensure you are aware of the company’s contractual obligations and conduct a ‘contractual audit’ to ensure that contracts are being followed. This will minimise the risk of a breach and subsequent court action.
Feel free to contact us if you need more information.
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